Firms likely to face claims for sizeable back payments

Government consultation setting a six-year limit for equal pay compensation
does not go far enough and is likely to be challenged by the European Court of
Justice

The Government’s decision to place a six-year back pay limit on equal pay claim
compensation is likely to be successfully challenged by the European Court of
Justice.

In its recent consultation document Equality and Diversity: The Way Ahead,
the Government makes proposals to reform the Equal Pay Act 1970. The bulk of
the document concentrates on reforms to race and disability discrimination
legislation and introduction of regulations outlining discrimination on the
grounds of religion/belief and sexual orientation in employment.

Greater uncertainty

Nevertheless, the issue of equal pay – and in particular compensation – is
just as significant and instead of establishing clarity, the Government’s
proposals may lead to greater uncertainty.

The Equal Pay Act currently limits the amount of back pay payable to a
successful applicant to two years from the date the claim was filed. This
limitation has been successfully challenged in Levez v T H Jennings (Harlow
Park) Ltd, 1999, IRLR and in relation to access to occupational pension schemes
by Preston v Wolverhampton Healthcare NHS Trust (No 2), 2001, IRLR.

In the Levez case the EAT ruled that equal pay claimants could claim losses
back as far as six years from the date of the claim. Where the claim relates to
sex discrimination in accessing an occupational pension scheme the House of
Lords in Preston ruled that claims could be backdated to 1976.

The Preston decision has the weight of the European Court of Justice (ECJ)
behind it and as European law is supreme, there is no need to legislate.

However, reform is necessary for other equal pay claims. The Government has
adopted a revised version of the Levez ruling, allowing back pay of up to six
years.

Deliberately concealed facts

A claimant can go back even further if it is established that the employer
deliberately concealed relevant facts or that he/she was subject to a
disability at the time of discrimination as long as proceedings are brought
within six years of the facts becoming known or the date the claimant ceased to
suffer from a disability. Disability is defined as being under 18 or being of
unsound mind. In these two instances the back pay could cover the full length
of service.

However, the prospect of unlimited back pay in all equal pay claims could
become established through a challenge in Europe. The ECJ has emphasised the
need in a number of cases for transparency in pay (as does the EOC Code of
Practice) and equal pay audits to identify discrepancies are now established
best practice. In those circumstances it will be possible to argue that a lack
of transparency is tantamount to a concealment of gender pay differentials.

Full compensation

Such an argument would be in line with the spirit of recent ECJ rulings.
Furthermore, the cap on compensation under the Sex Discrimination Act 1975 was
challenged in Marshall v Southampton and South West Hampshire Area Health
Authority (No 2), 1993, IRLR on the basis that victims of sex discrimination
were entitled to full compensation. In that case the ECJ held that limitation
on compensation denied real quality of opportunity.

Whatever the legal niceties, the principle that compensation should reflect
all losses has validity. By limiting compensation to six years’ back pay except
in exceptional circumstances, the government is merely increasing the risks of
litigation not reducing it. The unions are bound to take up the challenge given
their successes in Europe to date.